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Wednesday, November 20,2013

Bracing for Whole Foods

If history is any indication, small-scale natural-foods grocer and co-op can expect a hit from Whole Foods

by Andy McGlashen
Dave Finet is a really nice guy.

His laid-back style and demeanor make him a natural fit as general manager of the East Lansing Food Co-op, or ELFCO. When a City Pulse reporter visited on a recent Friday, Finet — ponytailed, bearded and bespectacled — was dressed in faded jeans and a Victory Motorcycles t-shirt.

“We’re not solely selling food,” he explained, as the scent of fresh-made peanut butter wafted into his cramped office. “We’re trying to build community.”

Finet is pretty much Mr. Co-op. He’s been involved in other cooperative groceries, along with a cooperative vegetarian restaurant, a cooperative taxi company and a cooperative bakery. (“Best job I ever had,” he said.)

He’s going to need that experience, and maybe a little luck. Contrary as it may be to his easygoing nature, it’s time for Finet to get tough. Whole Foods is coming to town.

Over the summer, the world’s largest retailer of natural and organic foods announced plans to open its seventh Michigan location in 2015, a 35,000-square-foot store in Meridian Township, near Grand River Avenue and Park Lake Road. Assuming the plans go forward — they still need township approval — ELFCO and the nearby natural grocer Foods For Living are in for some real pain. But experts say the local shops’ strong community roots and loyal customers should be enough to keep them afloat.

“There’s no reason East Lansing’s co-op shouldn’t survive this,” said C.E. Pugh, chief operating officer for the National Cooperative Grocers Association.

“That said, it’ll be tough,” he added. “We’ve always seen a little bit of an impact on our members. That could range from a 5 percent decline in sales to, in the most egregious cases, a 30 percent decline. So there’s no question there’s going to be a decline in sales. But in every case, those sales come back within a year of the Whole Foods opening. You take that hit, you’re down a year and you’re back. They don’t kill you, they just take away your growth for a while.”

Pugh, who has visited ELFCO before, said the store’s modest size and lack of visibility from Grand River Avenue make it particularly vulnerable. The co-op should be preparing for at least a 20 percent dip in sales, he said. A similar scenario played out in Ann Arbor two decades ago.

Local roots

Unlike a typical grocery store, ELFCO is consumer-owned and does not seek to make a profit. Instead, its purpose is to serve its members and their community. Anyone can own a share in the co-op for $60. The roughly 3,500 shareholders get occasional discounts, a vote in major decisions about the store and, in a good year, a rebate check based on how much they spend at ELFCO.

The co-op, which has 14 employees, recently added rooftop solar panels and created a meeting space where local groups can gather for free. ELFCO also helps manage a community garden beside its store, along with other efforts to expand access to nutritious food.

Foods For Living, on the other hand, is a for-profit operation. But it’s also a longstanding, local and employeeowned business that, according to store owner John Snyder, contributes to more than 100 charities.

“My belief is when you build a company and you have dedicated people who help you do that, they should get a piece of the pie,” Snyder said. “Our idea of how to do business is we want to be as human as possible. We want to share profits with the people who are actually doing the work, and with the community.”

Whole Foods also is committed to supporting the communities where it does business, said spokesman Keith Stewart. The company gives 5 percent of its revenue to charity and each store holds community support days on which 5 percent of sales go to local organizations. There’s also a program allowing shoppers to donate their 10- cent refund for having a reusable bag.

Finet said that’s a different brand of community involvement than ELFCO practices.

“We and other co-ops exist to serve the needs of our customers, our owners and our community, and to do that in an ethically sound, environmentally sound manner,” Finet said. “That is an expense against the bottom line to chain stores that is, as far as I can tell, only necessary inasmuch as it provides marketing. I think they have a very different goal overall than ELFCO and other food coops have. I think that when you’re a corporation that has investors, you exist largely to provide a monetary return on investment.

“I don’t know how many local folks are heavily invested in Whole Foods, but a lot of money is going to go from our community down to Austin, Texas,” he said.

‘A jerk move’

Whole Foods has come a long way since its first shop opened in 1980 with a staff of 19 in a former Austin nightclub. It’s now a Fortune 500 company with plans to open 1,000 locations nationwide. An October opening in Port Chester, N.Y. marked store No. 365.

The Whole Foods planned for Meridian Township will be directly across the road from ELFCO’s Northwind Drive store — the former site of Velocipede Peddler, which has a new location in Brookfield Plaza near Grand River and Hagadorn Road — and just a gluten-free scone’s throw from the corner of Grand River and Park Lake Road, where Foods For Living sits.

“I am amazed by the number of people who have already come in, folks who aren’t super co-op shoppers sometimes, and say they think that moving that close to us was — well the term somebody used was, it’s a jerk move,” Finet said.

Stewart said Whole Foods didn’t choose the building site to siphon customers from the other stores.

“A lot goes into the actual site selection,” he said. “That’s around population, ingress and egress and the ability to not throw off traffic patterns. We firmly believe there’s enough grocery business in the East Lansing market and the success of the Whole Foods market does not come to the detriment of any other food stores. The opportunity that we get in opening in a community is bringing a lot more attention to the natural foods category, so we hope that has a benefit for everybody. A local grocer probably doesn’t have much to worry about with Whole Foods coming to town.”

The plans Whole Foods submitted to the

township call for turning the three-way traffic light at Grand River and Northwind into a four-way signal. That could help make the area surrounding the intersection into a destination for shoppers seeking organic foods from arrowroot to zucchini, Pugh, from the co-op association, said.

For some shoppers, Whole Foods might even act as a gateway drug to a full-blown natural foods habit.

“If I’ve grown up shopping at Kroger, going to a co-op might be a bit of a stretch,” Pugh said. “What’s easier for me is to make that step into Whole Foods. In most cases, adding Whole Foods to the market is good for business, long-term.”

That’s what Foods For Living is counting on.

“The draw that they have is going to expose people who maybe don’t know we’re here,” said store manager Chris Faulkner. “Competition always sharpens everyone’s game. We’re pretty confident. We’ve been here for many, many years, and we’re the local guy in town. We’re just going to keep doing what we do best. Our strength is customer service, and I feel like that’s going to carry us.”

Finet likewise said he thinks ELFCO’s values will continue to resonate with customers.

“Those shoppers who shop various locations including a co-op will tend to go and check out the new place,” he said. “They’ll get to see the difference and will largely come back to the co-op because there’s a reason they were shopping here in the first place.”

Of course, the entire discussion would be moot if Whole Foods doesn’t get the necessary approval from Meridian Township.

The township planning commission met on Monday to gather public comment and begin discussing the plans Whole Foods submitted. The Planning Commission is scheduled to vote Monday on a recommendation to the Board of Trustees. The earliest the board will decide on the plans is Dec. 10.

Township Supervisor Elizabeth LeGoff said that as an ELFCO member she has concerns about the store, but she thinks the township board will approve it.

Trustee Milton Scales said he thinks the store will be good for the community, and he’s heard the same from residents.

“What I’m hearing from constituents is they can’t wait until Whole Foods gets here,” he said.

Learning from others

They might not come all the way back, if shoppers at the People’s Food Coop in Ann Arbor are any indication.

When Whole Foods first arrived in Ann Arbor in 1993, the co-op took a 25 percent sales hit. Another Whole Foods opened in 2008, adding to the strain on the co-op.

The co-op is in strong financial health, its latest annual report says, but its shoppers clearly split their spending between the co-op and the corporation.

“They bring their Whole Foods bags in,” said cashier manager Alyssa Hughes.

Hughes said Whole Foods seems to have influenced co-op customers’ ideas about the shopping experience.

“We get a lot of people who want to price compete, and we’ve never even advertised that we offer that,” she said. “It’s kind of complicated because we have downtown rent to pay, and we can’t just be the cheapest store in town.”

The co-op recently gave its employee training a makeover to focus on customer service, and made design updates to the store’s interior.

“I’m not saying that’s directly related to Whole Foods, but it’s definitely influenced by the fact that people have other options,” she said.

In Detroit, the widely publicized June opening of a Whole Foods has been hard on Ye Olde Butcher Shoppe, an upscale grocery store that opened just around the block in 2012.

Michael Solaka, who owns the store with his brother Peter, declined to share sales figures but said in an email, “The impact on our sales has been significant.”

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